Even though average account balances declined, given the stock market decline in the second quarter, there was also good news to be found in Fidelity’s Q2 2022 pensions analysis.
The analysis, which is based on savings behaviors and account balances of more than 35 million IRA, 401(k) and 403(b) retirement accounts, reveals that retirement savers continue to look long term, as total savings 401(k) rates were still hovering at record highs and the percentage of employees with 401(k) loans remained low for the fifth consecutive quarter.
In fact, despite the market volatility of the past two quarters, 401(k) plans continue to see steady contributions from individuals and their employers. The total savings rate for the second quarter – which reflects a combination of employee and employee 401(k) contributions – continues the positive momentum achieved in the first quarter, with a contribution rate of 13.9%, just in below Fidelity’s suggested savings rate of 15%. Men continued to save at higher rates than women at 14.7% versus 13.7%. Pre-retired baby boomers saved at the highest levels (16.6%), although even Gen Z participants saved in double digits (10%).
Moreover, the majority of retirement savers have not changed their asset allocation. Only 5% of 401(k) and 403(b) savers changed asset allocation in Q2, which is slightly lower than the 5.3% who changed Q1 and matches the number of individuals who modified change in their allocation in the second quarter of 2021. Among savers who made a change in the last quarter, Fidelity found that 85% made only one change and that the main change was to move savings towards more conservative investments (38%).
Meanwhile, outstanding 401(k) loans and average loan sizes continued to decline. The percentage of 401(k) savers initiating a new loan remains low, with only 2.4% of participants initiating a loan in the second quarter. Additionally, the percentage of participants with an outstanding loan also decreased to 16.7% for the second quarter, which is a significant drop from 18.9% in the second quarter of 2020.
And while average balances fell across the board, the declines were lower than the S&P’s 16.1% decline for the second quarter and lower than the first quarter of 2020 – the last period of significant market volatility, which has took place at the very beginning of the pandemic.
According to data from Fidelity, the average 401(k) account balance fell to $103,800 during the quarter, down 20% from a year ago and 15% from the first quarter of 2022. The average 403(b) account balance fell to $93,300, down 18% from a year ago and down 13% from last quarter. The average IRA balance was $110,800 in the second quarter, down 12.8% from last quarter.